/ world today news/ The forecast strategy for the budget until 2019 predicts poverty, a demographic crisis and getting stuck in a debt spiral
These days, the Ministry of Finance proposed a Strategy of estimated budget expenditures and revenues and the development of the economy until 2019. The document is strange to say the least and full of oxymorons. On the one hand, the social thresholds are frozen for three years, which will hit the weakest groups, respectively increasing poverty and reducing consumption, and on the other hand, growing economic growth and shrinking the budget deficit are expected. This is a contradiction that can only be paid for by worsening the quality of life of the population.
The strategy envisages that the amount of maternity and child benefits will be frozen for three years. Thus, for the second year of maternity, BGN 340 will be paid in 2019 as well. The minimum wage will be raised once next year by BGN 40 – to BGN 460. However, for the next two years, up to and including 2019, it will be frozen at this level.
At the same time, the forecast optimistically emphasizes how in the coming years the aspiration to preserve the stability of public finances remains. Some macro parameters will grow moderately, negative ones will decrease accordingly. And in 2019, we will have a budget deficit of only 0.5% of GDP. And we will surely be among the first in the EU in terms of financial indicators – budget excellers. But last in everything else, especially in terms of income and quality of life, like now. With the difference that with such a strategy this trend will deepen. How smooth growth to 2.7% in 2019 will be achieved without any stimulus at stake – neither in the economy nor in the human resource that actually creates GDP – is not clear.
In recent weeks, various industries have threatened to raise prices – trucking companies, because of the expected higher toll fee, taxis – because of the new tax. Separately, the energy minister admitted that with the full liberalization of the market, electricity will become more expensive, causing businesses in all sectors to raise prices and possibly lay off staff. The vignette increased in price by 30% due to a lack of funds for road repairs. The ticket for public transport is about to jump by 60%. With all these hikes, the cost of living will go up significantly, and that too this year. And the next two years? If this trend of unanticipated price hikes of basic services in various sectors continues while incomes remain at the same levels, how will people live given the large number of minimum wage population? Given that we now have a record level of people below the poverty line, with rising prices and frozen incomes and welfare thresholds, what will happen in two years? The rest of the income would grow by 2.7%, says the forecast, while the cost of living will increase many times faster. Basic services are rising in price by 20-30-60%, and average incomes – by 3-5%, while minimum incomes are frozen. Money for children with disabilities will also be frozen, despite protests and clear signals that this is an extremely discriminated group. On the other hand, insurance will increase, along with all other fees and services.
And the small business, which is already in crisis, how will it survive? Farmers and vegetable growers are in crisis – some because of low purchase prices, others – because of the unfair competition of cheap but well-subsidized imports.
Mass protests by various groups have already begun. And it’s only the beginning of the year. And until 2019? Taxes would remain the same, the strategy assures, but such promises by GERB have been proven not to work. With them, every decision is penultimate. One of the main requests in GERB’s election platform was that taxes would not be touched, and subsequently there was no proposal to raise the tax rate, including a new municipal tax. They even reached the level of a grandmother, who still lives day to day on her symbolic pension. So, if we draw the line – more than half of the working people are on the minimum wage and they will remain permanently in the ranks of the working poor. Pensioners below the poverty line are separate. The setting of a threshold of BGN 300 for the Easter indexation with BGN 40 revealed the huge number of pensioners who live on a meager monthly income – 1,260,000 people. A significant number of them are on a social pension of BGN 150 – as much as a deputy gives for dinner.
Separately, there are mothers who will continue to receive BGN 340 each for the next 3 years, even if the cost of living increases fivefold. How exactly do you live on BGN 340 – to pay bills and support a child at the same time, only they know. Meanwhile, politicians are racing to comment on how serious a problem the demographic crisis is and how measures should have been taken to stimulate the birth rate. Well, with these measures, the demographic crisis can only deepen, and the birth rate will fall to record low levels, besides the emigration of young people will accelerate.
The other two groups, to whom the state clearly states with its strategy for the coming years, that it has no intention of lifting a finger for them, will be left on the edge of survival. And if we are now in first place in the EU in terms of poverty and low income, within two years, with similar measures, Bulgaria will already be able to compete with the most backward African countries in terms of poverty. We have already overtaken them in terms of mortality and rate of population melting and are leaders – third in the world, with only the South African country of Lesotho and Ukraine in front of us, which after the “Maidan” went down sharply in all indicators. It seems that the rulers have accepted the “forecast” of the World Bank, that by 2050 we will have melted down to 5.3 million people, as a plan, a guideline. And because they still want to be excellent, they have decided to speed up the schedule, so that if they can redo it earlier – by 2030.
Macroeconomic forecasts are ridiculous against this background. The deficit will gradually decrease to 0.5% of GDP in 2019. By comparison, it was 2.9% of GDP at the end of 2015. “The achievement of the budget deficit targets for the period is expressed, on the one hand, in a reduction in the level of expenditure as a percentage of GDP, and on the other hand, in an increase in tax revenues in 2017 and 2018 compared to 2016.” the forecast says. It is clear where the spending cuts will come from – cutting social policy and money for the most disadvantaged groups. Given that this will lead to deepening poverty, where will more consumption come from and who will pay more taxes, with frozen incomes and no economic revival, that higher revenues are expected, even more so with the request that taxes are not be changed? Also, with a 3% deficit allowed for the EU, why is it necessary to chase such low values (0.5%) at the expense of cutting costs for the most needy groups?
The finance ministry also said a projected decline in exports and foreign investment would slow economic growth this year to 2.1 percent, after growth of as much as 3 percent last year. For 2017, however, it is betting on accelerating economic growth to 2.5% and to 2.7% in 2018 and 2019. It is interesting how with a drop in exports even now – this means weaker domestic production, a drop in foreign investments – this means a lack of prospects for opening new jobs, and a logically expected drop in economic growth by 1% for this year, how is growth expected to go up in the coming years? Given that then both incomes and social security rates will be frozen, but prices hardly. There is another negative – European funds will be severely limited, and in the coming years they will decrease. And so the vaunted growth of 3% for 2015 is due precisely to them, not to any real revival in the economy.
And another thing makes an impression – at the end of the period, the ratio of public debt to estimated GDP is expected not to exceed 30% compared to 25.7% at the end of February 2016. That is, the debt will continue to grow with decreasing costs and the population will become increasingly indebted . It is still not clear why it was necessary to withdraw all the debt already in the first quarter of the year. Of the new external debt of BGN 5.3 billion set for this year by the State Budget Law, we can withdraw BGN 3.9 billion (€2 billion) from foreign markets, and they were issued at once. What prompted this express withdrawal of funds amid the incessant boasting of oversubscribed revenues? “The new debt will be used to cover the budget deficit, refinance old debts and as a buffer in the fiscal reserve,” the Ministry of Finance said. However, a very small part of this new loan will go to refinance old debt – about 450 million euros. Second, the MoF data from the end of January show a budget surplus of nearly BGN 1 billion (BGN 991.6 million). In the strategy presented these days, the Ministry of Finance even predicted that it expects a surplus of 2.1% of GDP for the first quarter of the current year. The size of the fiscal reserve as of 31.01.2016 is a record – BGN 9.2 billion. Then? Why is a buffer needed? In addition, there are no development reforms in place that would require a larger buffer. That is, there are no urgent heavy expenses, the treasury is full, but we withdraw all possible debt? And what ensures that this money is not spent prematurely once it is available, and at the end of the year, when a number of payments occur, it turns out that the budget has a serious hole? And as has been the case for the past three years, once again the budget needs to be updated.
At the same time, for the next 2 years, the withdrawal of another new debt is expected, again significantly above the maturity amount for returning old debt. And again without increasing costs for the relevant sectors and groups. A strategy of indebtedness and indiscriminate spending, of impoverishment and attack on distressed groups. Where will the 2.7% economic growth in 2019 come from after two tough years of stagnation? There can be no development of the economy with blocked incomes, lack of incentives and raising prices. The strategy in question until 2019 is worse and inadequate than Simeon Dyankov’s strategy – pointed out by experts as the main factor for the crisis, recognized even by GERB as the main reason for their failure. And the crisis that started then will not only not go away soon, but will atrophy into a severe recession. Is this what we want?
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